TDS REFUNDS

Tax Deducted at Source (TDS) is the tax that is deducted from an individual salary before the salary gets credited to employee’s account. It is usually done by the employer or by a pre-determined deductor in other cases. Mostly TDS is taken out from the employee’s salary as per the declarations done by him at the beginning of the financial year. TDS refers to the process in which taxes are collected under Income Tax Act of 1961. So any payment that is collected under this provision needs to be collected after deducting the prescribed taxes. This is managed by the Central Board for Direct Taxes (CBDT) and fall under the part of Department of Revenue and is therefore managed by Indian Revenue Services (IRS). It becomes very important at the time of conducting audit of taxes. All the tax payers are required to file quarterly returns to CBDT. TDS Refund becomes significant in the following ways mentioned below:

The taxes are collected regularly generating a continuous stream of income for the government.
Moreover it benefits the payer too as the tax is distributed throughout the year and deducted every month causing less tax burden at the end of the year.
Thus this whole process of TDS is designed to help the government collect taxes without the IT department intervening every time and every step of the way.

TDS Refund

In case financial declarations made at the beginning of the year are greater than or lesser than the investment proofs submitted at the end of the financial year, a refund/lumpsum deduction of taxes comes into force. So if there is a difference between in the total tax deducted at the end of financial year and the total tax that is deducted from the income tax that one pays for the particular year, a TDS refund needs to be processed.

For Example:

Aman works in an MNC in Hyderabad. But somehow he was late in submitting his document for HDFC premium which is exempted under 80C section and so Rs 10000 extra was deducted as TDS.
- The total tax to be paid by Aman for 2014-15: Rs 40000.
- The tax that got deducted from Aman’s salary: Rs 50000.
- Aman’s eligibility for tax refund is: Rs 50000 – Rs 40000 = Rs 10000.

So we can clearly see that by the above example Aman had to pay total tax of Rs. 40000 wherein he ends up paying Rs 50000 due to not giving the insurance premium payment receipt on time to the employer thereby ended up paying extra in taxes.

In the same way Ratan was not able to invest his Rs 30000 in the investments as per time allotted by the employer. He was indecisive about whether to go on investing in life insurance policy or get a fixed deposit for long term savings. Pondering upon this thought of his, he missed the last date to submit the income tax proof as asked by the employer. So in this way also Ratan ended up paying more tax for the financial year even though he had done the investments for the concerned year.

These are some of the typical situations that are faced by the salaried individual every year by lots of individuals and so TDS refund process comes into action. The sooner you file the income tax return the earlier you can get your TDS refunded.

Filing the TDS Refund Claim

1. A TDS Refund claim has to be filed in cases where the employer deducts TDS over and above the actual tax liability. As mentioned in the above example, the difference between the tax deducted by the employer and the actual tax that is payable can be done by filing a claim in form of income tax return. At the time of filing the tax return, the tax payer needs to mention his/her account number, bank name and IFS Code. This way the income tax department can easily return the excess tax via an account transfer.

Tip: If in any financial year you are sure that the TDS will be more than the tax that is payable, then under section 197 you can file Form 13 to get the benefit of lower or nil income tax deduction. After that, the certificate that is received by you has to be submitted with the authority that is entrusted with deducting your TDS.

2. In the case where your income tax is less but the bank is deducting tax on the fixed deposits. Where the income is not available under the income tax bracket but the bank has deducted the income tax then in this case refund can be claimed in two ways.

Firstly, you can declare this income in your income tax return and the IT Department will refund the amount in your bank account.
Secondly, by filing Form 15G, the concerned bank understands that your salary does not come under any tax slab so no tax should be deducted at source at the time of maturity.

3. In case of senior citizens holding fixed deposits with the bank, they are exempt from the income tax deduction from the interest earned on the fixed deposit. So if you are at 60 year of age or above and have fixed deposits in the bank and the interest is being taxed, then you can fill 15H for no deduction of income tax from the bank on the interest of FD.

And thereafter, you can get the returns credited to your bank account by claiming it in your IT return. After that the IT department calculates the taxes and finds out that excess tax has been paid, it credits the amount back to the bank account of the payee as mentioned in the IT return.

Tip: When the payee declares the income from FD at the time of maturity, then the lump-sum amount should be mentioned. This can cause hefty taxes and also attracts a higher tax slab (as it attracts high income for that period of time). So it is advisable to declare income annually rather than declaring it at the time of maturity.

TDS Refund Interest

Under the Income Tax Act section 200A, if the IT Department delays in paying your tax refund, then you are entitled to a 6% simple interest on the amount refunded. The accrual of interest starts from the first month of the financial year i.e. April. But here also the interest is paid only if the refund amount is more than 10% of the total tax paid during the year. The interest that is earned on tax refund is also taxable as it comes under the head of income from other sources.

Hassle-free tax filing: if the following steps are considered then one can file hassle-free tax returns.

One should do tax planning beforehand rather than running for the last minute. It is always advisable to plan from the first day of the financial year.
One should avoid to filing tax returns late as it features an additional penalty charged on the tax that is due.
One should plan and manage the tax filing smartly so that there is equalization in the TDS and the tax payable by you. In this way, one can avoid having to resort to the refund process of TDS.
One should be aware of all the tax exemptions applicable to them and should claim those to maximise the advantages.

TDS rates for non-salaried payments made to residents and TCS rates for the specified receipts have been reduced by 25% of the existing rates.
The new rates will only be applicable to payments other than salary, such as payment for contract, professional fees, rent, interest, dividend, commission, brokerage, etc.
The reduced rates will be applicable for the remaining part of FY 2020-21, i.e., from 14th May, 2020 to 31st March, 2021.
This measure is expected to result in a liquidity release of Rs. 50,000 crore.

Tax Deducted at Source or TDS forms a major part of direct taxation mechanism applicable to various heads of income to collect taxes at the very source, i.e., at the time of payout. As TDS is deducted right at the source, it helps check tax evasion and also relieves the taxpayer from the burden of paying taxes as a lumpsum at the end of the financial year (FY). Hence, TDS mechanism allows both a steady inflow of revenue to the government and reduced financial strain for tax payers.

Table of Contents :

Tax Deducted at Source – Concept

According to the Income Tax Act, 1961, policies and regulations related to tax deducted at source (TDS) are managed by CBDT (Central Board of Direct Taxes). A person who is liable to deduct the tax is called “deductor” and the person from whose account the relevant TDS is deducted is called “deductee”.

As per the working mechanism of TDS, the deductor deducts the tax at the time of making payment (if it is above a predefined limit) and forward the same to the government on behalf of the deductee. It is the deductor’s duty to pay the tax deducted at source to the government within a prescribed time limit. The deductor after filing returns, issues a TDS certificate to the deductee.

Types of TDS

UPDATE: 2 new sections (194K & 194-O) have been inserted in Income Tax Act by FM Nirmala Sitharaman in Union Budget 2020. Section 194K has introduced TDS on dividend income from shares and mutual fund units by putting an end to Dividend Distribution Tax (DDT). Further section 194-O has introduced TDS at 1% for sale of goods and services by an e-commerce participant facilitated by an e-commerce operator.

Below mentioned ar some of the sources of income that fall under the purview of tax deducted at source (TDS):

Salary – Payment from employer to employee
Interest on securities
Interest excluding interest on securities
Prize money from winning games like a crossword puzzle, card, lottery, etc.
Contractor payments
Insurance Commission
LIC maturity amount
Brokerage or commission
Transfer of immovable property
Compensation on acquiring immovable property
Payment of rent
Commission payments
Interest on bank deposits
Remuneration paid to director of the company, etc.

Points to Remember Before Deducting TDS

Section 192 to 194L of Income Tax Act can be referred for the complete list of expenses and sources of income under TDS.
If an individual does not fall under income tax slab, he or she can furnish Form 15G or Form 15H to the deductor as a declaration in advance for non-deduction of tax at source.
Form 15H is for senior citizens.
Form 15G is for all other individuals.
TDS is applicable to each type of income beyond a certain limit.
TDS is deducted as per the income tax slab rate for salaried individuals.
For other deductees, TDS is deducted at the specified percentage for each income type.

TDS is not applicable in the following cases:

When the amount is paid to government or any government body and Reserve Bank of India.
Amount is paid to notified mutual funds under Section 10(23D).
When deductee has certificate of no-deduction under Section 192 of the Income Tax Act.
When amount is paid to state or central financial corporations.
Interest credited or paid to :

Banks or Banking Company
Life Insurance Corporation, Unit Trust of India or any other insurance company
National Savings Certificate
Kisan Vikas Patra
Non Resident External Account
Banking Co-operative society
Savings account and Recurring deposits of banks and co-operative society
Notified body for non-deduction of tax

TDS Certificates

As per Section 203 of Income Tax Act, everyone who deducts tax at source is required to furnish a certificate to the respective deductee specifying the amount deducted as tax, along with all the other particulars. Such certificates are called TDS certificates.

In case of Salary Incom

- The employer has to provide Form 16 to his employee specifying the amount of tax deducted at source.
- The form has all the particulars related to computation, deduction and payment of tax.
For non-salaried cases
- Form 16A is given by the deductor mentioning all details of tax computation, deduction and payments.
- The certificate needs to be issued to the deductee within 15 days of due date of filing TDS return.
- TCS Certificate (Tax Collected at Source): A certificate that contains the amount of TDS collected and deposited with the tax department. It is issued via Form 27D.
Depositing TDS to Central Government
- The deductor needs to deposit the TDS to central government by making a payment through NSDL using physical form that can be processed in authorized bank branches.
- The payment can be made online through the official portal of NSDL using Challan 281 and by routing the payments through net banking.
- The amount deducted as tax needs to be deposited before filing the TDS return.
- The e-payment is compulsory for all assesses who are liable for audit under Section 44AB.

Penalties Associated With TDS Deduction

The deductor has to pay penalty, if the TDS deduction and payment deadlines are breached.

For non-deduction of TDS

If a deductor/collector fails to collect the tax at source, whole of such expenses can be disallowed from computation of total profits by the income tax assessing officer.

For late-deduction of TDS

In case the tax at source is deducted after a day or few days of making the payment of income, then simple interest at the rate of 1% per month on the amount of tax deducted at source will be levied.

For late-payment of TDS

As mentioned above, there is a monthly due date for depositing the TDS so collected to the government. If deductors fail to do so, they have to pay simple interest on the amount deducted as tax at the rate of 1.5% per month.

For late-filing of TDS Returns

If the deductor fails to furnish the TDS return on or before specified due date, he shall be liable to pay a penalty of ₹ 200 per day till the date of default. Please note that the total amount of such penalty cannot exceed the total amount of tax deducted at source.

For non-filing of TDS Returns

If the deductor fails to file TDS return within the due date, then the assessing officer may charge a penalty ranging from ₹ 10000 to ₹ 1 lakh.

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